Trading strategy for Binary Options Trading

11/15/201012/19/2011 by Editorial Team

Binary options trading has become an interesting and exciting product of the financial trading market in the recent years. Binary options trading is simple because there are only two possible outcomes, a win or a loss. Due to the ease of use, the interface and quick returns and high yields, binary options trading has attracted so many investors to it. The trading in binary options quickly yield the turnover and therefore it is fast becoming popular. The turnover in this type of trading can give results daily or even hourly.

There are different binary options trading strategies followed by different traders. Though there may be different strategies available for binary options trading, the basic concept is the same.

Therefore if you follow good binary options trading strategies you are assured of good returns.

Below are some of the most commonly used binary options strategy:

Pairing strategy

The pairing strategy is the pairing up of ‘an’ in the money call and money put. Therefore if at expiration, the spot price is between the two prices, you can still make money because it creates a nested position. The pairing strategy is capable of yielding high returns from a binary option trading contract.

Hedge and double position

When you pair the put with a call into a hedge and double position. This binary option strategy is also helpful in making huge profits. A hedge is a position undertaken by an investor that would eliminate the risk of an existing position, or a position that eliminates all market risk from a portfolio. In order to be a perfect hedge, a position would need to have a 100% inverse correlation to the initial position. As such, the perfect hedge is rarely found.

Binary options betting

Another very common strategy is the binary options betting strategy where a trader makes a pull or call option if there is a big unexpected or a volatile movement in the markets. The binary options betting strategy is based on the fact that people put positions on indicators that influence the market prices in a big way.

Stop-loss trading

This is one of the most popular of the trading strategies among the traders. The stop-loss trading strategy looks simple if viewed but in practical implementation it needs expertise and experience to judge the right stop-loss time. The stop-loss strategy selection is slightly difficult as it depends on many factors which are discussed as below:

Risk tolerance: the risk bearing capacity of a trader bears an impact on the stop-loss strategy of the traders. As there are different temperamental traders in the market, the strategy really depends on the personal preferences of a trader.

Trading vehicle: it really depends on which market tool are you working on because each has its own stop-loss strategy. A stock trader looks for a constant stop-loss level whereas an options trader might select a two dimensional stop-loss strategy.

Trading style: the stop-loss strategy for each trader differs as the trading style of each trader is different from the other. One might be making 5 trades during the day and the other might be making just one. So it really depends on the trading style, as the former would be looking for a tight stop-loss strategy while the latter would want a less strict and flexible stop-loss strategy.

Behavior of the stock market: the behavior of the stock market has quite a bearing on the strategy adopted by the traders. Quiet markets would mean tighter strategies and the flexible strategies during volatile trade periods.

Therefore stop-loss strategies are a complex strategy where each trader sets his own limit and develops his own system based on his or her experience.

Bungee option trading strategy

Though the implementation of the binary options trading strategy may differ from trader to trader, the basic concept and the working is the same all over the world. Under this strategy it is assumed that because in binary options trading there can be only two possible outcomes, the turnover is quick. It is the lure of the high returns in quick time that the investors are drawn towards the bungee options trading. In some cases the fast trading trades offer profits as high as sixty to seventy five percent. At times the yields are so high that it is difficult to calculate the composite value of the returns.

To decrease the probability of a loss the traders use the nothing or all bungee options trading contracts. This is done by combining the “at the money” put with an “in the money” call. This position is beneficial for the trader because in case the spot price or the value is between the two values or strike prices, the trader still makes money. Thus a bungee options strategy combines a call option with a put option into a double position. The ease of trading and simple disbursement structure is the main benefit of trading with the bungee options trading strategy. Again you may start trade with a small investment and make huge profits for yourself.

With the above mentioned various binary options trading strategy, it is easy to make huge profits in quick turnover time. However, note that no strategy is completely safe or can be called fool-proof. What works for one might not be successful for the other. Therefore it is the experience and method of trading of a trader that works for him and the actual strategy that he develops on his own gets him the expected returns.

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